[Federal Register Volume 62, Number 250 (Wednesday, December 31, 1997)]
[Notices]
[Pages 68330-68331]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-33993]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39482; File No. SR-NASD-97-86]


Self--Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the National Association of 
Securities Dealers, Inc. Relating to Small Order Execution System Tier 
Classification

December 22, 1997.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on December 12, 1997, the 
National Association of Securities Dealers (``NASD'' or Association) 
filed with the Securities and Exchange Commission (``SEC'' or 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the self-regulatory 
organization.\2\ The Commission is publishing this notice to solicit 
comments on the proposed rule change, as amended, from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ See letter from Robert E. Aber, Vice President and General 
Counsel, Nasdaq, to Katherine England, Assistant Director, SEC, 
dated Dec. 11, 1997 (``Amendment No. 1''). The Exchange initially 
submitted the proposal on December 4, 1997. However, at the 
Commission's request, the Exchange filed Amendment No. 1 to the 
proposed rule change on December 12, 1997. Amendment No. 1 corrects 
a typographical error in the SOES tier-size classification criteria 
used by the Nasdaq. Amendment No. 1 also clarifies that, despite the 
typographical error, the correct criteria set out in NASD Rules 
4613(a)(2) and 4710(g) was used by Nasdaq in reclassifying the SOES 
tier sizes. The correction was also made in the Notice to Members 
97-90.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The NASD is submitting this filing to effectuate The Nasdaq Stock 
Market, Inc.'s (``Nasdaq'') periodic reclassification of Nasdaq 
National Market (``NNM'') securities into appropriate tier sizes for 
purposes of determining the maximum size order for a particular 
security eligible for execution through Nasdaq's Small Order Execution 
System (``SOES''). Specifically, under the proposal, 544 NNM securities 
will be reclassified into a different SOES tier size effective January 
1, 1998. Since the NASD's proposal is an interpretation of existing 
NASD rules, there are no language changes.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for the Proposed Rule Change

    In its filing with the Commission, the NASD included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements and a copy of the Notice-to-Members may be 
examined at the places specified in Item IV below. The NASD has 
prepared summaries, set forth in Sections A, B, and C below, of the 
most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the rule change is to effectuate Nasdaq's periodic 
reclassification of NNM securities into appropriate tier sizes for 
purposes of determining the maximum size order for a particular 
security eligible for execution through SOES. Nasdaq periodically 
reviews the SOES tier size applicable to each NNM security to determine 
if the trading characteristics of the issue have changed so as to 
warrant a tier size adjustment. Such a review was conducted using data 
as of September 30, 1997, pursuant to the following established 
criteria.\3\

    \3\ The classification criteria are set forth in NASD Rule 
4613(a)(2) and the footnote to NASD Rule 4710(g).
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    NNM securities with an average daily non-block volume of 3,000 
shares or more a day, a bid price less than or equal to $100, and 
three or more market makers are subject to a minimum quotation size 
requirement of 1,000 shares and a maximum SOES order size of 1,000 
shares;
    NNM securities with an average daily non-block volume of 1,000 
shares or more a day, a bid price less than or equal to $150, and 
two or more market makers are subject to a minimum quotation size 
requirement of 500 shares and a maximum SOES order size of 500 
shares; and
    NNM securities with an average daily non-block volume of less 
than 1,000 shares a day, a bid price less than or equal to $250, and 
two or more market makers are subject to a minimum quotation size 
requirement of 200 shares and a maximum SOES order size of 200 
shares.

    Pursuant to the application of this classification criteria, 544 
NNM securities will be reclassified effective January 1, 1998. These 
544 NNM securities are set out in the NASD's Notice to Members 97-90 
(December, 1997).
    In ranking NNM securities pursuant to the established 
classification criteria, Nasdaq followed the changes dictated by the 
criteria with three exceptions. First, an issue was not moved more than 
one tier size level. For example, if an issue was previously 
categorized in the 1,000-share tier size, it would not be permitted to 
move to the 200-share tier even if the reclassification criteria showed 
that such a move was warranted. In adopting this policy, Nasdaq was 
attempting to maintain adequate public investor access to the market 
for issues in which the tier size level decreased and help ensure the 
ongoing participation of market makers in SOES for issues in which the 
tier size level increased. Second, for securities priced below $1 where 
the reranking called for a reduction in tier size, the tier size was 
not reduced. Third, for the top 50 Nasdaq securities based on market 
capitalization, the SOES tier sizes were not reduced regardless of 
whether the reranking called for a tier-size reduction.
2. Statutory Basis
    The NASD believes the proposed rule change is consistent with 
Section 15A(b)(6) of the Act.\4\ Section 15A(b)(6) requires that the 
rules of a national securities association be designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system and, in general, to 
protect investors and the public interest. Specifically, the NASD 
believes that the reassignment of NNM securities within SOES tier size 
levels will further these ends by providing an efficient mechanism for 
small, retail investors to execute their orders on Nasdaq and by 
providing investors with the assurance that they can effect trades up 
to a certain size at the best prices quoted on Nasdaq.
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    \4\ 15 U.S.C. Sec. 78o-3.

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[[Page 68331]]

B. Self-Regulatory Organization's Statement on Competition

    The proposed rule change does not impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Association has neither solicited nor received written comments 
on the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    The foregoing rule change constitutes a stated policy, practice, or 
interpretation with respect to the meaning, administration, or 
enforcement of an existing rule and, therefore, has become effective 
pursuant to Section 19(b)(3)(A)(i) of the Act \5\ and subparagraph (e) 
of Rule 19b-4 thereunder.\6\
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    \5\ 15 U.S.C. 78s(b)(3)(A).
    \6\ 17 CFR 240.19b-4(e).
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    At any time within sixty days of the filing of such proposed rule 
change, the Commission may summarily abrogate such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. Sec. 552, will be available for inspection and copying at 
the Commission's Public Reference Room. Copies of such filing also will 
be available for inspection and copying at the principal office of the 
NASD. All submissions should refer to File No. SR-NASD-97-86 and should 
be submitted by January 21, 1998.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-33993 Filed 12-30-97; 8:45 am]
BILLING CODE 8010-01-M